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Risk coverage is a complex business whose ultimate objective is to protect the client. Providing value for money is a priority for the insurance industry. Insurers continually strive to develop products that best meet the expectations and evolving needs of consumers, as well as changing market conditions.
Value for money is not just a buzzword. In Europe, a comprehensive supervisory framework already exists which already accomplishes a high level of protection for consumers, while helping authorities to spot outliers and take action where necessary.
The long list includes the EU's Insurance Distribution Directive (IDD) and the Delegated Regulation on Product Oversight and Governance (POG). These were complemented by the Supervisory Statement by the European Insurance and Occupational Pensions Authority (EIOPA) in November 2021, and EIOPA's detailed methodology to assess value for money in the unit-linked market of October 2022.
And it does not stop there. National Competent Authorities are in the process of assessing how to make use of EIOPA’s guidance, with some already testing new approaches for value for money that best reflect their market’s realities.
Beyond this, the European Commission's Retail Investment Strategy (RIS) proposal put forward additional rules on value for money, including the creation of a pan-European benchmark based on cost and performance criteria. In parallel, EIOPA recently launched a consultation to gather stakeholders’ views on how to develop value for money benchmarks.
The need for a holistic approach
Unfortunately, both the Commission and EIOPA proposals place too much emphasis on costs, and not enough on the qualitative elements that contribute to offering quality and diversity to consumers such as the biometric coverage and the existence of a financial guarantee.
Furthermore, they do not consider the quality and the benefits offered by Insurance-based Investment Products (IBIPs) which are crucial to meet consumer needs and to their purchasing decision. In practice, a narrow approach to value for money based solely on cost cannot work for insurance, as IBIPs are built on both quantitative and qualitative aspects – and this makes them different from other types of investment products.
When it comes to IBIPs cheaper is not always better. And it is wrong to assume that cheaper, lower-quality IBIPs will always meet consumers' needs and goals and provide them with value for money. To put it into perspective, a unit-linked product with a limited biometric coverage may be cheaper than a product that has a significant biometric coverage but both products serve different purposes and satisfy different clients’ needs....
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